This winter has been brutal here in Wisconsin, where I’m writing. More than 80 inches of snow has fallen, breaking state records and sparking a chorus of jokes about global warming.
While the economy has dropped as rapidly as the mercury, companies sporting heavy debt loads have taken a similar beating.
That’s been particularly hard on the two technologies that once held such promise for free or low-cost municipal broadband service: Wi-Fi and WiMax.
BACK TO EARTH
EarthLink announced in February that it is putting its city Wi-Fi business up for sale. Since the death of CEO Garry Betty early last year, analysts have noted a continued scaling back of EarthLink’s once ambitious plans to blanket several major and minor U.S. cities.
The company announced in September it was opting out of proposed networks in Houston and San Francisco, though its showcase network in Philadelphia is more than three-quarters complete.
Once envisioned as a viable third alternative to DSL and cable modem competitors, municipal Wi-Fi was also touted as a means to address the digital divide, as cities building such networks could subsidize them in ways to attract low-income users.
Of course many progressive cities such as Wisconsin’s capital, Madison, never quite got up to speed on Wi-Fi’s potential. They also vastly underestimated the competitive response from the telco lobby, which paid for (oh, excuse me, lobbied for) legislation in more than a dozen states outlawing any publicly subsidized network that would compete with theirs.
For now, Philadelphia and other cities will be scrambling for funding to keep their networks afloat, while those that haven’t been fully built out may see their network pieces bought out of the EarthLink bargain bin. Madison, meanwhile, has a for-profit municipal network that has drawn numerous service complaints and few customers.
The debt crunch, meanwhile, has struck Clearwire’s WiMax effort hard. Its fourth quarter earnings in early March took a hammering even though it said it was already out of the red in more than half of its 46 domestic markets.
Investors and analysts have been leery of Clearwire’s prospects ever since its Sprint partnership, inked earlier last year, dissolved in November. Employing older broadband technology, Clearwire currently counts about 400,000 customers in 16 states.
But the buzz generated by the partnership came from the prospect of Sprint’s deep cash reserves fueling Clearwire’s push to launch a nationwide WiMax network that would offer the first true mobile broadband service along with static home service.
That push would take up to $12 billion; analysts say that’s a figure seemingly out of reach considering the subprime mortgage meltdown and concomitant freeze in capital markets. And that’s just to build the thing; analysts add that it may take several years to become profitable.
Worsening the picture has been Clearwire’s shocking writedown of $29.7 billion in February, while it’s burning money at an unsustainable rate; it reportedly nearly doubled its cash losses in the fourth quarter, to $133.8 million, over last year.
SPRINT TO THE FINISH?
Analysts and broadband executives say the profit potential for a nationwide mobile broadband service is simply too tasty for major players to eschew. (ABI Research predicts total U.S. WiMax revenues of more than $10 billion by 2012.)
The appeal works on several planes: a major technology firm, either domestic or international, gets into the broadband game with a potentially brilliant marketing plan keying on the mobility of WiMax. Of course a consumer electronics firm would benefit tremendously from having a new line of modems and other services to sell, while a mobile content player would make a splash as well.
Companies like Motorola, Intel, SK Telecom, Best Buy and Google as well as others have all been rumored to be twisting Sprint’s arm to get back into the ring, while Sprint, low on cash itself, will likely twist back to get as much investment as it can from its potential partners. Indeed, rumors of Intel offering up to $2 billion in backing have been buzzing for weeks.
They had better move fast. Telco and cable players offering a “triple play” of broadband, TV and phone service have been sewing up customers in major markets and working hard to reduce churn. Their businesses are already in the black, and they’re already working down their massive debt loads.
Only last year in this space both municipal Wi-Fi and mobile WiMax seemed poised for takeoff. But the current gloom reflects just how difficult the “build it and they will come” approach can be.
The cable industry, in the deregulatory environment signaled by the Telecommunications Act of 1996, invested an estimated $65 billion to build out its hybrid fiber-coaxial cable network, capable of 750 MHz of bandwidth. Telcos have spent tens of billions on their advanced broadband build-outs, whether through Verizon’s fiber-to-the-premises FiOS service or on less expensive technologies.
Now, like the proverbial Narnian winter, the freeze descending upon next-generation U.S broadband networks may last a lot longer than area denizens have come to expect.
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